Published in the New Hampshire Bar News
Charlie Morgan, a career soldier from New Durham, New Hampshire succumbed to breast cancer on February 10, 2013. Morgan leaves behind a same-sex spouse, Karen, who is not eligible for the survivor benefits afforded to an opposite-sex military spouse, or for Social Security benefits that would help her take care of their 5 year-old daughter, Casey. Charlie was (with Karen) a plaintiff in one of many lawsuits currently challenging the federal Defense of Marriage Act (“DOMA”).
DOMA defines the term marriage as "a legal union between one man and one woman as husband and wife" and spouse as "a person of the opposite-sex who is a husband or a wife". Under Section 3 of DOMA, many of the rights and benefits of opposite-sex married couples are denied married same-sex couples. The General Accounting Office has identified 1,138 federal statutory provisions affecting benefits, rights, and privileges based on marital status or in which marital status is a factor. These include Veteran’s benefits, Social Security survivor spousal benefits, FMLA and ERISA protections, and the unlimited marital deduction, to name a few.
DOMA is under attack on many fronts and its future is uncertain. The Second Circuit recently found Section 3 unconstitutional. The US Supreme Court granted certiorari in Windsor v. United States, an action filed by Edith Windsor, who faced $360,000 in estate taxes when her wife died. The Justice Department has announced that it will no longer defend DOMA and the President has concluded that Section 3 is unconstitutional.
What may not be well known is that Section 2, which is not part of the Windsor challenge, allows states to refuse to recognize valid civil marriages of same-sex couples. Currently only nine states and District of Columbia (including the Northeastern states of ME, NH, MA, CT, NY and VT), have legalized same-sex marriage. Seven other states recognize civil unions or domestic partnerships. Thirty-one states have constitutional amendments banning same-sex marriage. State law rights and privileges benefiting opposite-sex married couples apply to private, state, and municipal workers, and affect adoption rights, property rights, state taxes, and control of a spouse’s remains, among others.
Even if a same-sex couple is married in one of the states that legalized same-sex marriage, most states do not recognize such equal rights from other jurisdictions. For example, it does not appear a legally married New Hampshire same-sex couple can get divorced in Texas, a state which does not recognize same-sex marriage.
While some commentators predict the Court will uphold the Second Circuit, it is unclear how narrow the decision will be and what impact the decision will have on married same-sex couples. Even if the Court strikes down Section 3 of DOMA, the patchwork of state laws regulating marriages, civil unions, and domestic partnerships may not be affected.
Whatever the outcome, estate planners should recognize the uncertain landscape and consider developing estate plans to meet not only the client’s basic planning needs, but which are designed with enough flexibility to ensure that the same-sex couple can take advantage of future planning opportunities.
In advising same-sex married couples, one of the first steps is determining where and when they married. Because of the changing requirements for same-sex marriage among the states, it may be preferable, in some cases, to have a client remarry in New Hampshire where the laws are now well settled.
Next, review any existing documents. Many commentators advise that wills and trusts should include a very expansive definition of “spouse”, “marriage” , “children” and “descendant”, and avoid relying on state law definitions. Use a definition that specifically identifies the same-sex spouse, including the date and place of marriage, and be sure to include references to the spouse when identifying the individual as a beneficiary to avoid ambiguity.
It is important that clients have updated financial and health care powers of attorney, clearly nominating the spouse as the primary person to make financial and health care decisions in the event of incapacity. Our office also prepares a HIPAA release, which generally names the health care and financial agents.
Depending on the assets and complexity of the estate plan, the same-sex couple will need will, if not trusts. The will should nominate the spouse as the personal representative and primary guardian over minor children. The will should also provide burial instructions and control over remains. Lastly, if there is not a separate trust, the will contains all the dispositive provisions of the client’s plan.
You should confirm that the designated beneficiary of life insurance policies and retirement accounts is correct. If the couple is not using revocable trust(s), it may be useful to title assets in joint tenancy to avoid probate and ensure the property ends up in the hands of the person(s) intended.
On a more advanced level, one of the primary federal benefits of marriage is the unlimited marital deduction, which allows the lifetime tax-free transfers between opposite-sex married couples and delayed payment of estate taxes at death, but which is unavailable to same-sex married couples. Your wealthier clients may need to develop a plan that has flexibility in the event DOMA does not survive. For instance, consider drafting a plan that provides alternative dispositive provisions, providing a marital bequest or marital qualified terminable interest in property (QTIP) in the event DOMA is overturned and the IRS recognizes same-sex spouses.
Under current law, if you are counseling a couple whose assets exceed the available estate tax exemption amount, you will want to structure the estate in such a manner as to avoid double estate tax by leaving assets in trust for the benefit of the surviving spouse, but not outright. In this manner, the couple can take full advantage of whatever estate tax exemption is available, and only incur a tax on any assets that exceed the exemption amount.
Commentators note that some surviving same-sex spouses are filing estate tax returns (Form 706) to claim a “protective” marital deduction and paying the estate tax under protest, as well as electing their deceased spouse’s unused exemption amount (portability).
During life, the wealthier spouse can transfer $14,000 tax-free in annual exclusion gifts to the other spouse. The use of various types of inter-vivos trusts for the surviving spouse can efficiently transfer or equalize wealth. Irrevocable Life Insurance Trusts are one popular alternative to the marital deduction, allowing the tax-efficient transfer of wealth to the surviving same-sex spouse (or domestic partner, for that matter). In addition, the use of more exotic wealth transfer techniques such as Qualified Personal Residence Trusts and Grantor Retained Income Trusts might be appropriate.
No matter your personal beliefs, DOMA and the patchwork of state laws affecting marriage are here and will continue to evolve. An estate plan certainly cannot “fix” all of the discrimination under federal and state law now facing same-sex married couples. But the estate planning attorney should be prepared to help the same-sex couple develop a plan in which their basic wishes are respected, and which builds in flexibility so they can take full advantage of all of the current and future opportunities available under both state and federal law.
Alexandra Breed is a Director in McLane’s Trusts and Estates Department. She can be reached at McLane’s Concord office at (603)230-4417 or at [email protected]. Christopher Paul is also a member of the Trusts and Estates Department and can be reached at [email protected] or (603) 628-1335. The McLane Law Firm is the largest full-service law firm in the state of New Hampshire, with offices in Concord, Manchester and Portsmouth as well as Woburn, Massachusetts.